Nine Dragons Ltd is a company trading in China. The company has appointed ER Sun
ID: 2421479 • Letter: N
Question
Nine Dragons Ltd is a company trading in China. The company has appointed ER Sun, an auditing firm, at its auditor. Nine Dragons Ltd wishes to borrow $1 million dollars from Quick-Finance Ltd, a company trading in Australia. Before lending the money, the directors of Quick-Finance Ltd viewed the auditor’s report of Nine Dragons Ltd posted at their web-site and which was prepared by ER Sun. Based on the positive financial information contained in that auditor’s report, the directors of Quick-Finance Ltd were happy to lend the money to Nine Dragons Ltd. Six months after the loan was advanced. Nine Dragons Ltd experience financial difficulties and the company collapsed. The directors of Quick-Finance Ltd are shocked by these sudden events and are furious at the financial loss they are facing. They wish to sue ER Sun, the auditing firm, to recover their financial loss.
Advise the directors of Quick-Finance Ltd of their chances of success in successfully suing ER Sun to recover the $1 million dollars loaned to Nine Dragons Ltd on the basis of the contents of the auditor’s report which they viewed on the world wide web.
Explanation / Answer
Quick finance should reveal all the facts which includes nature, timing, and extent of proofs as regards to false reports produced on the company's website. Auditors have the obligations to report all the reports in correct and complied with the GAAP. Any auditor which fails to comply with the standards laid by the law has to bare the loss incurred by the user of the report which contains the false and faulty information. Quick finance should prove that the information which was produced was false at the time when it was produced, and the company's position have not changed after the previous report was produced on the website. The conditions was same which was at the time when the company faced financial difficulties when the report was produced.
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